European Court of Justice: Investor-State Arbitration Under Intra-EU Bilateral Investment Treaties Is Incompatible With EU Law

In a March 6, 2018 judgment in Slovak Republic v. Achmea BV, the Court of Justice of the European Union found that investor-State arbitration under the bilateral investment treaty between the Netherlands and Slovakia is incompatible with EU law.

In stark contrast with a consistent line of investment treaty awards, the Court ruled that a provision in a bilateral investment treaty (“BIT”) concluded between EU Member States (“intra-EU BIT”) that allows an investor from one EU Member State to arbitrate investment disputes against another EU Member State is incompatible with EU law because it adversely affects the autonomy of EU law. Specifically, the Court found that the investor-State arbitration provision in the Netherlands-Slovakia BIT is contrary to Articles 344 and 267 of the Treaty on the Functioning of the European Union (“TFEU”). The TFEU ensures the uniform and effective application of EU law by (i) prohibiting, under Article 344, EU Member States from submitting disputes concerning the interpretation or application of EU law to dispute settlement methods other than those provided for in the EU founding treaties and (ii) establishing, under Article 267, a preliminary reference procedure that allows the Court and EU Member State courts to engage in a judicial dialogue on the interpretation of EU law.

The Court held that because arbitral tribunals constituted under intra-EU BITs may be called upon to interpret and apply EU law to rule on possible infringements of the BIT, but may not request preliminary rulings from the Court, and their awards are subject only to limited judicial review by EU Member State courts, investor-State arbitration under intra-EU BITs threatens the effective application of EU law.

The Achmea judgment has potentially far reaching implications, calling into question the investor-State arbitration mechanisms in the nearly 200 existing intra-EU BITs.